AVIATION REGULATORY UPDATE

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1 DOT INCREASES CIVIL PENALTY AMOUNTS The United States Department of Transportation (DOT) recently published an interim final rule to adjust for inflation the maximum civil penalty amounts for violation of certain economic statutes, and the rules and orders issued pursuant to these statutes. Under Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 methodology, the following increases became effective August 5, 2016: 49 U.S.C (a)(1) General civil penalty for violations of certain aviation economic regulations and statutes. From $27,500 to $32,140 (base line penalty $25,000); 49 U.S.C (a)(1) General civil penalty for violations of certain aviation economic regulations and statutes involving an individual or small business concern. From $1,100 to $1,414 (base line penalty $1,100); 49 U.S.C (a)(5)(A) Civil penalties for individuals or small businesses for violations of most provisions of Chapter 401 of Title 49, including the anti discrimination provisions of sections and and rules and orders issued pursuant to these provisions. From $11,000 to $12,856 (base line penalty $10,000); 49 U.S.C (a)(5)(C) Civil penalties for individuals or small businesses for violations of 49 U.S.C and rules and orders issued pursuant to that provision. From $5,500 to $6,428; and 49 U.S.C (a)(5)(D) Civil penalties for individuals or small businesses for violations of 49 U.S.C or consumer protection rules and orders issued pursuant to that provision. From $2750 to $3214. CBP ACCEPTS IATA XML STANDARD FOR CARGO On August 8, 2016, the International Air Transport Association (IATA) announced that IATA s Cargo XML messaging standard will be utilized by the U.S. Customs and Border Protection Agency (CBP) to collect advance cross border data on U.S. export shipments. As background, Cargo XML messages and standards are developed by the IATA Cargo XML Task Force (CXMLTF) by reusing certain components from the United Nations Center for Trade Facilitation and Electronic Business core component library. CBP s utilization of these new standards is due to begin within the next few months. CBP is working to reduce the considerable number of Electronic Data Interchange (EDI) message formats currently supported to process international import, export cargo and cargo release information. IATA is assisting in this effort by permitting the US CBP to publish to the minimal data file specifications for the IATA Cargo XML messages.

2 IATA s Cargo XML Toolkit will simplify current processes as it will contribute to standardization of data submission for air cargo shipments. IATA s Cargo XML purpose is to ensure uniformity, mutual understanding, accuracy and economy in electronic data exchanges. Agencies such as the Cargo Committee, Cargo Services and Cargo Agency Conferences have accepted these new Cargo XML standard messages already. However, CBP s adoption of IATA s standard is seeing in the industry as an important step towards standardization on a global scale. GAO STUDY FINDS THAT AIRLINE POLICIES FOR CONTRACTING OUT MAINTENANCE REMAIN CONSISTENT The Federal Aviation Administration, which is responsible for overseeing nearly 4,800 FAA certificated repair stations (both in the United States and abroad), recently tasked the Government Accountability Office (GAO) with performing a comprehensive review of maintenance contracting trends and FAA oversight of repair stations. GAO s report, published last month, assesses: (1) trends and factors that influence airline maintenance; (2) FAA s oversight of foreign and domestic repair stations; and (3) efforts taken by FAA to improve its risk based oversight. In preparing its report GAO analyzed BTS data on maintenance spending from by certain U.S. commercial airlines. GAO also conducted interviews, visited multiple foreign repair stations, and analyzed FAA inspection and enforcement data for repair stations during the same time period. After conducting this research GAO determined that the amount of aircraft maintenance contracted out to domestic and foreign repair stations (as opposed to being performed in house) has remained relatively steady from 2010 through GAO s report indicates that annual contracted maintenance spending ranged from 58 to 64 percent of total annual maintenance spending for the airlines surveyed. GAO also reported that the type of aircraft maintenance can affect an airline s decision to contract out maintenance. For example, GAO notes that airlines generally indicated that the majority of light, routine maintenance is performed in house while more complicated maintenance and repairs are typically outsourced. Representatives interviewed by GAO during the course of its study identified three key influencing factors that may affect airline maintenance decisions: (1) service quality available at repair stations; (2) cost considerations; and (3) the use of service contracts with OEMs. The GAO report recommended that FAA should: (1) develop and implement a process for incorporating data for U.S. airlines maintenance contracted to repair stations into FAA s Safety Assurance System (SAS); and (2) develop a process to evaluate the effectiveness of SAS. FIFTH CIRCUIT UPHOLDS EXCISE TAX ON FRACTIONAL AIRCRAFT PROGRAMS On July 25, 2016, the U.S. Court of Appeals of the Fifth Circuit unanimously upheld a district court ruling that Bombardier Aerospace Corp. was liable for $32 million in aviation excises taxes. The Internal Revenue Service ruled in March 2015 that Bombardier s fractional aircraft ownership program, Flexjet, was required to remit federal excise taxes on fees collected from participants. Bombardier challenged the finding and a

3 Texas district court ruled in favor of the government on cross motions for summary judgment. The Fifth Circuit decision upholds the district court s ruling. Bombardier charges three types of fees to Flexjet participants: a monthly management fee, a variable rate fee, and a fuel component adjustment fee. The IRS held that any amount paid for taxable transportation is subject to federal excise tax. Bombardier argued that it was not engaged in commercial aviation and that the monthly management fee was not taxable under the statute. The district court and Fifth Circuit agreed with the IRS s position that the possession, command, and control test warranted the fees at issue being taxable because Bombardier was in possession, command, and control of the aircraft involved in the transportation. Bombardier sought to rely on a 1992 IRS memo to a competitor regarding the taxes at issue. The Fifth Circuit dismissed this argument because the 1992 memo was not complete, was not specific about which fees were taxable, and was not directed to Bombardier but rather to a competitor. The Fifth Circuit found a more recent 2004 to be sufficient enough to inform Bombardier of its tax obligations. ASIANA SEEKS TO HAVE CARGO ANTITRUST CLAIMS DROPPED More than 90 lawsuits have been filed following a joint investigation by the U.S. Department of Justice and the Federal Trade Commission investigation of an alleged price fixing scheme of the air freight industry dating back to According to DOJ, the conspirators allegedly used meetings, conversations and other forms of communication to determine the rates that airlines should charge for various routes, and then imposed rates on consumers. Lawsuits related to this investigation were filed against numerous airlines, including Asiana Airlines Inc. (Asiana). On August 16, 2016, Asiana petitioned a New York federal judge to dismiss claims against it by a subsidiary of Deutche Bahn AG, arguing that the $370 million antitrust suit should be dropped because the claimant isn't a U.S. company. The claim, originally filed by Schenker AG, seeks damages for air freight purchases that Schenker or its affiliates made from air carriers including Asiana over a six year period. The complaint fails to identify any of the purported affiliates and as such, Asiana argues, Neither the Constitution nor the Federal Rules permit Schenker to represent a group of absent, unidentified affiliates under the guise of an opt out complaint. Asiana also argues that to make Sherman Antitrust Act claims, Schenker must prove the actions of the defendants affected U.S. export commerce and that it is a U.S. exporter, which Schenker is unable to do under the Foreign Trade Antitrust Improvements Act. We will keep readers updated on any new developments in this case. NEW FAA RULES FOR SMALL UNMANNED AIRCRAFT SYSTEMS GO INTO EFFECT On August 29, 2016 the FAA announced the implementation of Part 107 Small Unmanned Aircraft Rule (published as of June 21, 2016) for routine non hobbyist use of small unmanned aircraft systems (suas or drones).

4 Provisions of Part 107 that recently became effective include those that pertain to waivers on some rule s restrictions based on Section 333 of the FAA Modernization and Reform Act of 2012 (Part 101), airspace authorization and aeronautical knowledge tests. For instance, the FAA can waive some of the rule s restrictions if an operator can demonstrate that the proposed flight may operate safely in the national airspace system. Moreover, users of suas can operate their unmanned aircraft in Class G (uncontrolled) airspace without air traffic control permission. But, operations in Class B, C, D and E airspace need air traffic approval. Access to controlled airspace can be requested via the FAA s electronic portal. Finally, operators can now take the Aeronautical Knowledge Test required under Part 107. After an operator passes the test, he or she must complete an FAA Airman Certificate and/or Rating Application to receive a remote pilot certificate required under Part 107. Importantly, Part 107 does not apply to model aircraft. Model aircraft operators must continue to satisfy all the criteria specified in Section 336 of Part 101, including the stipulation they be operated only for hobby or recreational purposes. DOT ASSESSES CIVIL PENALTIES AGAINST FOUR DOMESTIC AIRLINES FOR PROVIDING INACCURATE COMPENSATION INFORMATION American Airlines, Alaska Airlines, Southwest Airlines and United Airlines were each assessed civil penalties ranging from $35,000 to $45,000 for violating several DOT regulations, including the Department s oversales rules, 14 C.F.R. Part 250, the domestic baggage liability rule, 14 C.F.R. Part 254, and failing to adhere to the Customer Service Plan requirements found in 14 C.F.R These fines are the result of violations uncovered during compliance inspections by the Department s Office of Aviation Enforcement and Proceedings at various U.S. airports. $45,000 against American Airlines The Enforcement Office found that American Airlines agents at boarding gates and ticket counters failed to produce proper copies of the carrier s written denied boarding statement (250.9 Notice) upon request. In some cases agents produced outdated copies of the Notice with compensations amounts being more than five years out of date. American Airlines agents also provided ticket notices or displayed signs which limited the carrier s domestic baggage liability to amounts less than $3,500. Pursuant to 14 C.F.R. Part 254, an air carrier shall not limit its liability for provable direct or consequential damages resulting from the disappearance of, damage to, or delay in delivery of a passenger s baggage to an amount less than $3,500 per passenger for travel on or after August 25, $40,000 against Alaska Airlines The Enforcement Office found that Alaska Airlines agents at boarding gates and ticket counters failed to produce accurate copies of the carrier s written denied boarding statement upon request. In many instances, the agents provided outdated copies with compensation amounts below the minimum value as stated in 14 C.F.R Additionally, some compensation amounts were more than five year out of date. Alaska agents also produced ticket notices or displayed signs which limited the carrier s domestic baggage liability to amounts less than $3,500.

5 $40,000 against Southwest Airlines The Enforcement Office found that Southwest Airlines agents at some boarding gates and ticket counters could not provide proper copies of the carrier s written denied boarding statement upon request. One agent provided a partial copy of Southwest s denied boarding statement, which contained compensation amounts less than the actual amounts stated in 14 C.F.R Furthermore, agents produced ticket notices or displayed signs which limited the carrier s domestic baggage liability to amounts less than $3,500. $35,000 against United Airlines The Enforcement Office found that United Airlines agents at some boarding gates and ticket counters could not provide proper copies of the carrier s written denied boarding statement upon request. Some agents could not produce a copy of the written denied boarding statement at either the ticket counter or the boarding gate. In some instances agents produced outdate copies of the statement with compensation amounts below the minimum value as stated in 14 C.F.R AIR CANADA FINED FOR DISABILITY VIOLATIONS Air Canada violations of 14 C.F.R. Part 382 Air Canada was fined $225,000 for violations of 14 C.F.R. Part 382 for failing to provide dispositive responses to written disability complaints and for failing to allow passengers with service animals to travel in the cabin. By engaging in the above practices, Air Canada also violated 49 U.S.C which prohibits carriers from engaging in unfair and deceptive practices. More information on the alleged violations is below: Failure to Provide Dispositive Responses to Disability Complaints The Enforcement found that Air Canada s responses to disability related complaints frequently failed to inform complainants of their right to pursue enforcement action with DOT. Furthermore, Air Canada regularly failed to specifically admit or deny that a violation of the substantive portions of Part 382 that were at issue in the complaints occurred. Service Animal Harness and Training Documentation Policy In 2008 Air Canada submitted a conflict of law waiver request which requested the Department grant a waiver to the carrier regarding compliance with 14 C.F.R In its request Air Canada stated that section 149 of the Canadian Transportation Agency s (CTA) Air Transport Regulations (ATR) limited the carrier s acceptance of service animals to animals that have been trained by specific organizations and are harnessed in flight. The Department denied the waiver request and a subsequent appeal, noting that the language of CTA s Air Transport Regulations did not prevent Air Canada from accepting other types of service animals. Upon review of the carrier s website and personnel training manuals during the regulatory compliance inspection, the Enforcement Office noted that Air Canada had a policy in place that was not in compliance with 14 C.F.R CIVIL PENALTIES PROPOSED BY FAA Airworthiness Directives The FAA has proposed a $500,000 civil penalty against SeaPort Airlines, Inc. for allegedly operating three Cessna Caravans on a total of 583 flights when inspections were overdue. The FAA alleges SeaPort did not perform the initial and recurring inspections of the turbine compressor blades for the aircraft. These required inspections are intended to prevent compressor turbine blade failures,

6 which could cause an engine to lose power. Because the inspections were overdue, the aircraft were not airworthy. Furthermore, the FAA alleges SeaPort did not record the method of compliance with the Airworthiness Directive and when the next recurring inspection was required for the aircraft. Hazardous Materials Violations The FAA has proposed a $54,000 civil penalty against Gordon Food Service for violations of the Hazardous Materials Regulations. The FAA alleges that Gordon Food Service offered for shipment via UPS 30 four ounce Fryer Boil Out Foaming tablets. The tablets are made of corrosive sodium hydroxide. The package was not properly marked and the company did not provide the required emergency response information for the shipment. Also, the FAA alleges Gordon Food Services did not ensure its employees received required hazardous materials training. If you have any questions, please contact Evelyn Sahr (esahr@eckertseamans.com, ) or Drew Derco (dderco@eckertseamans.com, ). This Aviation Regulatory Update is intended to keep readers current on matters affecting the industry, and is not intended to be legal advice. If you have any questions, please contact Evelyn Sahr at esahr@eckertseamans.com or ; Drew Derco at dderco@eckertseamans.com or ; or Reese Davidson at rdavidson@eckertseamans.com or